Business people and governments across the world are cautious concerning the severe influence of currency depreciation and appreciation on different practices such as the price of products locally, exports, and imports.
Appreciation in the rate of foreign exchange decreases the value of the domestic currency and affects importers negatively since the cost of imports rises, a situation that favors the competitiveness of local products (Alotaibi, 2016). Appreciation of domestic currency attributable to a decrease in the foreign exchange rate affects importers positively since the cost of imports decreases. When the value of domestic currency appreciates, the exports of the country will earn a high profit and vice versa (Stosic, Stosic, Ludermir, de Oliveira, & Stosic, 2016). In the free market, the levels of exports and imports influence and have a significant impact on the exchange rate although monetary institutions and governments feel that they have control over it.
Just as variations in the demand and supply of products influence the cost of goods and services, the regular shifts in the rate of foreign exchange control the value of domestic currencies. Business practices and the flow of commodities in the market depend entirely on the rate of foreign exchange (Coudert, Couharde, & Mignon, 2015).
Over and above the direct impact of the continuing process of globalization on international trading and the cost of products, has significant connotations for the relations between exchange rates and the entire global economy. It is advisable for importers to first assess the degree of risk to which they will be exposed (Stosic et al., 2016). This may be realized with the help of foreign exchange professionals. Such an assessment acts as an important step in assisting importers to establish the best course of action.
Alotaibi, K. (2016). How exchange rate influence a country’s import and export. International Journal of Scientific & Engineering Research, 7(5), 131-139.
Coudert, V., Couharde, C., & Mignon, V. (2015). On the impact of volatility on the real exchange rate–terms of trade nexus: Revisiting commodity currencies. Journal of International Money and Finance, 58, 110-127.
Stosic, D., Stosic, D., Ludermir, T., de Oliveira, W., & Stosic, T. (2016). Foreign exchange rate entropy evolution during financial crises. Physica A: Statistical Mechanics and its Applications, 449(1), 233-239.